Commission Implementing Regulation (EU) 2021/2287 of 17 December 2021 imposing definitive countervailing duties on imports of aluminium converter foil originating in the People’s Republic of China and amending Implementing Regulation (EU) 2021/2170 imposing definitive anti-dumping duties on imports of aluminium converter foil originating in the People’s Republic of China

(208) The fact that the sampled companies benefitted from different types of loans during the investigation period with variances in respect of rates and other conditions, does not necessarily mean that these loans were received at market conditions. Indeed, as mentioned already in recital (177) above, the Commission found that loans were provided to the three sampled groups of exporting producers at interest rates below or close to the People’s Bank of China (‘PBOC’) Loan Benchmark Rate and below or close to the Loan Prime Rate as announced by the National Interbank Funding Center (‘NIFC) that was introduced on 20 August 2019 (51), regardless of the companies’ financial and credit risk situation. Hence, the loans were provided below market rates, and the claim is dismissed.

(209) Consequently, the Commission confirmed its conclusion that, in so far as the ACF industry is concerned, all financial institutions, including private financial institutions, operating in China have been entrusted or directed by the State in the sense of Article 3(1)(a)(iv), first indent of the basic Regulation to pursue governmental policies and provide loans at preferential rates to the ACF industry.

(210) In previous anti-subsidy investigations, the Commission already determined that domestic credit ratings awarded to Chinese companies were not reliable, based on a study published by the International Monetary Fund (52), showing a discrepancy between international and Chinese credit ratings, combined with the findings of the investigation concerning the sampled companies. Indeed, according to the IMF, over 90 % of Chinese bonds are rated from AA to AAA by local rating agencies. This is not comparable to other markets, such as the Union or the USA. For example, less than 2 % of firms enjoy such top-notch ratings in the US market. Chinese credit rating agencies are thus heavily skewed towards the high end of the rating scale. They have very broad rating scales and tend to pool bonds with significantly different default risks into one broad rating category (53). According to the China bond market insight 2021 by Bloomberg (54), five Chinese local rating agencies dominate the bond market: China Chengxin, Dagong, Lianhe, Shanghai Brilliance, and Golden credit rating, and around 90 % of the bonds are rated AAA by local rating agencies. However, many of the issuers have received a lower ‘S&P’ (Standard and Poor) global issuer rating of A and BBB (55).

(211) In addition, foreign rating agencies, such as Standard and Poor’s and Moody’s, typically apply an uplift over the issuer’s baseline credit rating based on an estimate of the firm’s strategic importance to the Chinese Government and the strength of any implicit guarantee when they rate Chinese bonds issued overseas (56).

(212) The Commission also found further information to complement this analysis. First, the Commission determined that the State can exercise a certain influence over the credit rating market. According to the information provided by the GOC, during the investigation period, there were 12 domestic credit rating agencies active on China’s bond market a majority of which are State-owned. In total, 60 % of all rated bonds in China had been rated by a State-owned ratings agency (57).

(213) Second, there is no free entrance on the Chinese credit rating market. It is essentially a closed market, since rating agencies need to be approved by the China Securities Regulatory Commission (‘CSRC’) or the PBOC before they can start operations (58). The PBOC announced mid-2017 that overseas credit rating agencies would be allowed to carry out credit ratings on part of the domestic bond market, under certain conditions. The Commission also found that during the investigation period, there were two foreign-owned and two Sino-foreign joint venture credit rating agencies operating on the Chinese market. However, these credit rating agencies follow Chinese rating scales and are thus not exactly comparable with international ratings, as explained above.

(214) Finally, a 2017 study performed by the PBOC itself confirms the Commission’s findings, stating in its conclusions that “if the investment level of foreign bonds is set to international rating BBB-and above, then the domestic bond investment grade may be rated at AA-level and above, taking into account the difference between the average domestic rating and the international rating of 6 or more notches” (59).

(215) In view of the situation described in recitals (210) to (214) above, the Commission concluded that Chinese credit ratings do not provide a reliable estimation of the credit risk of the underlying asset. On this basis, even if some sampled companies were awarded a good credit rating by a Chinese rating agency, the Commission concluded that such ratings are not reliable. Those ratings were also distorted by the policy objectives to encourage key strategic industries, such as the ACF industry.

(216) Following final disclosure, the GOC contested that the terms of loans and financing are always connected with credit ratings and claimed that more reliable, i.e. less favourable, credit ratings would not mean that the loan would be issued at higher interest rates. The GOC also disagreed with Commissions reference to PBOC Working Paper No 2017/5 mentioned in the recital (214) above, which confirmed the difference between the average domestic rating and the international ratings. The GOC argued that it is not a working paper issued by the PBOC, instead, it is an academic paper co-authored by a staff member of the PBOC, and thus does not represent the views of the PBOC.

(217) Furthermore, according to the GOC, the paper tries to explain that there is a difference in notches regarding a Chinese company’s credit rating between the domestic system and the international system, due to the fact that the former is based on the company’s risk ranking among Chinese domestic companies, while the latter is based on the same company’s risk ranking among all the companies of the world. Finally, the GOC argued that several Chinese companies had received higher credit ratings by international agencies.

(218) The Commission noted first that the claim that difference in credit ratings would not impact the pricing of loans does not have any support in financial literature. Indeed, the basic rationale of credit ratings is to assist financial operators to correctly price the credit risk in their lending decisions. An absence of correlation between credit rating and the price (interest rate) of loans, would indeed indicate that the market is distorted and that the financial institutions are entrusted or directed to provide loans to the companies irrespective of their financial situation and creditworthiness.

(219) Second, the fact that some companies received higher credit ratings by international agencies does not put into question the Commission’s overall assessment as such. Indeed, as mentioned in recital (211) above, foreign rating agencies typically apply an uplift over the issuer’s baseline credit rating based on an estimate of the firm’s strategic importance to the Chinese Government and the strength of any implicit guarantee when they rate Chinese bonds issued overseas.

(220) Concerning the PBOC Working Paper No 2017/5, the Commission noted that it was found under the research section of the PBOCs website which indicates the following: “Working Papers carry academic papers by the PBC staff. The views expressed in the papers are those of the authors and may not represent those of their organization. Reports and citations thereof should specify the source as “PBC working papers” (60).” Therefore, even though it may not represent as such the official view if the PBOC, it is correct to refer to it as a working paper of the PBOC. In addition, as these papers are released on the official website of the organization, one can reasonably assume that the PBOC at least considers that these papers meet the criteria for valid academic research.

(221) The Commission also disagrees with the assumption that there is a difference in notches due to the fact that the domestic rating is based on a risk ranking among Chinese domestic companies, while the foreign rating is based on a risk ranking among all the companies of the world. Following this hypothesis, and in view of the fact that around 90 % of the bonds within China are rated AAA, this would lead to the conclusion that nearly all companies in China are ranked the same in terms of risk because they are all performing exceptionally well compared to each other, which seems highly unlikely in terms of economic reality.

(222) In any event, the Commission noted that since none of the banks providing the loans to the exporting producers cooperated with the investigation, it could not verify whether and how the risk assessment and the credit rating is taken into account. Therefore, it had to rely on facts available, which confirmed that the interest rates for the loans provided were well below market rates and thus that these governmental policies and working paper did play a role in the setting of interest rates as not linked to the real underlying risk.

(223) Finally, the Commission recalled that its assessment of appropriate credit rating is not based on a mechanistic approach but that the Commission assessed individually the financial situation of each sampled group of exporting producers in order to reflect their particularities, as described in recital (237).

(224) The Commission established that companies in all three sampled groups used various short-term and long-term loans to finance their activities. These loans were mainly used for daily operations, working capital needs, for special projects, investments or to replace other loans. Each group also used short-term and long-term export credits.

(225) In the course of the investigation, the Commission found that all sampled groups contracted loans with the specific purpose of replacing loans from other banks. The Commission established that with this practice some companies could rearrange their liabilities and obtain the funds without which they would not be able to meet their repayment obligations, evidencing therefore problems to repay debt.

(226) Following final disclosure, the GOC claimed that revolving loans are not necessarily a sign of liquidity issues. It claimed that such operations are common by any commercial company, including those in the Union. GOC further claimed that there are various reasons for such refinancing and that there is nothing suggesting that companies making use of such operations would be unable to repay debt.

(227) The Commission disagreed with the assessment made by the GOC. The Chinese authorities themselves consider revolving loans to be an additional factor of credit risk. As stated in the CBRC’s ‘Guidelines on risk-based loan classification’, revolving loans should be reported at least as a ‘concerned’ loan (61). A loan falling under this category means that even though a borrower can pay the principal and interest of the loan now, there are some factors, which may negatively affect the repayment thereof.

(228) Revolving credit facilities do indeed exist in Europe, but their terms and conditions are very different from the Chinese revolving loans. Revolving credit facilities in the Union are basically credit lines, with a pre-determined maximum amount that can be withdrawn and repaid on several occasions during a pre-specified time period. In addition, such credit facilities entail an additional cost, be it a contractual margin on top of the usual short-term market rates, or a predetermined management fee.

(229) On the other hand, the revolving loans found at the Chinese sampled companies did not have conditions different from other short-term loans. They were not labelled as being a credit line or a revolving credit facility and there were no extra fees or margins attached to it. At first sight, they appeared to be normal short-term loans. However, sometimes the purpose of the loan referred to ‘repayment of loans’. In addition, when verifying the repayments of such loans during the RCCs, it became clear that the capital amount was actually being repaid by fresh loans received from the same bank for the same amount within a week before or after the maturity date of the initial loan. The Commission then extended its analysis to the other loans in the loan tables and found in most cases other instances with exactly the same characteristics. For all these reasons, the Commission maintained its position on revolving loans.

(230) As demonstrated in recitals (161) to (168), several legal documents, which specifically target companies in the sector, direct the financial institutions to provide loans at preferential rates to the ACF industry. These documents demonstrate that the financial institutions only provide preferential financing to a limited number of industries/companies, which comply with the relevant policies of the GOC. The Commission considered that the reference to the ACF industry is sufficiently clear as this industry is identified either by its name or by a reference to the product that it manufactures or the industry group that it belongs to.

(231) Following final disclosure, the GOC disagreed with the Commission’s finding of specificity within the meaning of Article 4(2)(a) of the basic Regulation. The GOC reiterated its claims that that the legal framework under which the financial institutions are entrusted or directed to provide loans to encouraged industries is only of non-binding nature and that the ACF industry is not encouraged.

(232) First, the binding nature of the legal framework is already confirmed under recitals (182) and (183). Second, the fact that ACF industry is encouraged has also already been extensively discussed and confirmed in section 3.1..

(233) The Commission therefore maintained its conclusion that subsidies in the form of preferential lending are not generally available to all industries but are specific within the meaning of Article 4(2)(a) of the basic Regulation.

(234) The Commission calculated the amount of the countervailable subsidy based on the benefit conferred on the recipients during the investigation period. According to Article 6(b) of the basic Regulation, the benefit conferred on the recipients is the difference between the amount of interest that the company has paid on the preferential loan and the amount that the company would have paid for a comparable commercial loan, which the company could have obtained on the market.

(235) As explained in Sections 3.4.1 and 3.4.2 above, the loans provided by Chinese financial institutions reflect substantial government intervention and do not reflect rates that would normally be found in a functioning market.

(236) The sampled groups of companies differed in terms of their general financial situation. Each of them benefitted from different types of loans during the investigation period with variances in respect of maturity, collateral, guarantees and other conditions. For those two reasons, each company had an average interest rate based on its own set of loans received.

(237) The Commission assessed individually the financial situation of each sampled group of exporting producers in order to reflect these particularities. In this respect, the Commission followed the calculation methodology for preferential financing through loans established in the anti-subsidy investigation on hot-rolled flat steel products originating in the PRC, as well as in the anti-subsidy investigations on tyres originating in the PRC and certain woven and/or stitched glass fibre fabrics originating in the PRC (62), as explained in the recitals below. As a result, the Commission calculated the benefit from the preferential financing through loans practices for each sampled group of exporting producers on an individual basis, and allocated such benefit to the product concerned.

(238) Following the final disclosure, the Daching group claimed that there was no analysis by the Commission provided as to whether any calculation methodology used in these anti-subsidy investigations on tyres originating in the PRC and certain woven and/or stitched glass fibre fabrics originating in the PRC (63) should be legally and factually adequate to apply in the current investigation. Also, there was no indication that the calculation methodology was the same.

(239) The analysis of the preferential financing, as provided in the recitals (224) to (236) was comparative to the analysis made in the previous cases (64) mentioned in the recital (237). The calculation methodology followed the same principles, while the benefit from the preferential financing through loans practices for each sampled group of exporting producers was made on an individual basis, as explained in recital (237) and disclosed to these producers. The claim of the party was therefore rejected.

(240) The Commission noted that Donghai Foil, the exporting producer in the Nanshan Group, had not received a credit rating for the period considered. Other companies within the Nanshan Group were awarded credit ratings ranging between AA+ and AAA– by Chinese credit rating agencies. In light of the overall distortions of Chinese credit ratings mentioned in Section 3.4.1.8, the Commission concluded that these ratings are not reliable.

(241) As mentioned in recitals (176) to (178) above, the Chinese lending financial institutions did not provide any creditworthiness assessment in this investigation. Therefore, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the Nanshan Group were at market rates.

(242) Donghai Foil presented itself in a generally profitable financial situation with profit margins ranging between 0,5 % and 7,2 % according to its own financial accounts although the profit margins had declined in the recent years and since 2018 they remained below 1 %. This company only used short-term debt to finance its operations. The Commission assessed the short-term liquidity situation of the company.

(243) Regarding short-term liquidity, the Commission used liquidity ratios such as current ratio, quick ratio, cash ratio and cash flow ratio. These ratios measure the company’s ability to pay short-term obligations, including short-term debt. The company presented an average current ratio of 1,6 during the IP. Although the current ratio is above 1, the company’s current assets are just enough to pay the short-term obligations, which is not sufficient to justify a high credit rating, for which a company should present a ratio of at least 2. The quick ratio of the company was 1,3 in 2019 and 1,2 in 2020, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term. The cash ratio of the company was on average 0,01 in the IP; therefore, the company had insufficient cash at hand to pay its short-term debt. The company also showed a negative cash flow from operating activities (‘CFO’) in 2016, 2017 and 2019. The CFO ratio was extremely low, – 0,02 in 2019 and – 0,04 in 2020. A CFO ratio lower than 1 means that the company does not generate enough cash to cover its current liabilities.

(244) Considering the liquidity indicators described in recital (243), the Commission concluded that the company at issue presented short-term liquidity problems which results in having a high risk debtor profile.

(245) The Commission based the long-term solvency risk assessment on various solvency ratio such as debt ratios and coverage ratios. The solvency ratios measure the company’s ability to meet its long-term debt obligations. They are used by lenders and bond investors when assessing the company’s creditworthiness.

(246) Debt ratios measure the amount of liabilities, in particular long-term debt. The company had a high Debt-to-Assets ratio of 0,54, which means that 54 % of the assets of the company are financed by short-term debt. In addition, this ratio has been sharply increasing over the years. The Debt-to-Equity ratio also increased continuously from 0,3 in 2016 to 1,2 in 2020, which points to the fact the company is financing more and more of its activity mainly through debt. The higher the Debt-to-Assets and the Debt-to-Equity ratios are, the higher the financial risk of the company is, which means that the company may have a harder time servicing its existing debts.

(247) The coverage ratios measure the company’s ability to serve its debt and meet its financial obligations. Since the company had a negative cash flow from operations in most years, the average CFO-to-Debt ratio of the company in the IP was also negative. This means that the company would not be able to repay its total debt with the operating cash flow it generates. The data from 2020 shows a slightly better situation. Nevertheless, it would still take the company 25 years to repay its debt, thus indicating serious problems of the company to generate enough cash in order to repay is debt.

(248) Therefore, considering the liquidity and solvency issues described in recitals (242) to (247), the Commission considered that the company presented a fragile financial situation and a high risk profile for potential lenders and investors. In view of the precarious cash situation of the exporting producer, it is therefore not surprising to see that it had no external financing at all, but was financed exclusively via intercompany loans.

(249) The Commission therefore also looked at the financial situation of the two parent companies of the group, Nanshan Group and Shandong Nanshan. Although their financial situation looked better at first sight, with higher profitability figures (around 8 to 10 %) and lower debt ratios (with a Debt-to-Assets ratio of around 25 % for both of them), similar liquidity issues could be observed. Indeed, the cash ratios of the parent companies stayed consistently below 1 and were on average 0,6 in the IP. Therefore, they had insufficient cash at hand to pay their short-term debt. The companies also showed a consistently low CFO-to-Debt ratio, amounting to 0,4 in the IP, meaning that they did not generate enough cash to cover their current liabilities.

(250) Moreover, some companies in the group had contracted loans and bonds to repay preceding loans or loans from other banks. This type of loan is considered as an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to their short and long term financing. Finally, the Commission found that Shandong Nanshan had undergone a debt restructuring exercise in the past, and had benefited from a debt-to equity swap deal, as further explained below in Section (358).

(251) Taking into account the serious liquidity and solvency problems that the financial analysis of the companies in the Nanshan Group, as described in recitals (242)to (247) pointed out, the Commission considered that the overall financial situation of the Nanshan Group corresponds to a BB rating, which is the highest rating that does no longer qualify as ‘investment grade’. ‘Investment grade’ means that bonds issued by the company are judged by rating agencies as likely enough to meet payment obligations and that banks are allowed to invest in them.

(252) Based on publicly available data on Bloomberg, the Commission used as a benchmark the premium expected on bonds issued by firms with a BB rating, which was applied to the PBOC Loan Benchmark Rate, or after 20 August 2019 to the Loan Prime Rate as announced by the NIFC (65) in order to determine the market rate.

(253) That mark-up was determined by calculating the relative spread between the indices of US AA rated corporate bonds to US BB rated corporate bonds based on Bloomberg data for industrial segments. The relative spread thus calculated was then added to the Loan Benchmark Rate published by the PBOC or, after 20 August 2019, to the Loan Prime Rate published by the NIFC, at the date when the loan was granted (66) and for the same duration as the loan in question. This was done individually for each loan provided to the group of companies

(254) As for loans denominated in foreign currencies, the same situation in respect of market distortions and the absence of valid credit ratings applies, because these loans are granted by the same Chinese financial institutions. Therefore, as found before, BB rated corporate bonds in relevant denominations issued during the investigation period were used to determine an appropriate benchmark.

(255) The benefit was established by applying the benchmark described in recital (252) – (253) to the period of loan financing during the investigation period.

(256) Following final disclosure, the GOC considered that the Commission incorrectly disregarded the credit rating of the cooperating exporting producers and disagreed with the methodology used by the Commission to establish a benchmark, which should be based on finding a comparable benchmark on the domestic market instead of applying “out-of-country credit ratings”. The Commission should instead have used comparable loans not affected by the market distortions in the country concerned. The GOC also considered that the Commission reached an arbitrary conclusion when stating that most of the sampled Chinese exporters should correspond to a BB rating.

(257) The GOC furthermore objected to the use of the relative spread between AA and BB rated bonds as the mark-up and its addition to the PBOC rates. According to the GOC, the method of the relative spread is flawed as the level of the upward adjustment in the first place depends on the level of the going interest rates, and as the PBOC reference rates in the PRC during the relevant years were much higher than the reference rate in the US. Moreover, the use of a relative spread entails that the mark-up becomes a variable figure.

(258) In response to these claims, the Commission noted the following.

(259) First, on the use of a benchmark outside the country, as explained above, domestic credit ratings awarded to Chinese companies were considered distorted by the policy objectives of the GOC to encourage key strategic industries and therefore unreliable. As a result, the Commission had to look for a benchmark based on undistorted credit ratings, which can only be found outside the country.

(260) Second, on the BB rating applied to the companies, the Commission recalls that it did not make an arbitrary decision, but performed an individual financial analysis of all the companies concerned, which pointed to a financial situation corresponding to a BB rating.

(261) Third, the use of the relative spread was already explained in previous investigations (67). Indeed, the relative spread captures changes in the underlying country specific market conditions, which are not expressed when following the logic of an absolute spread. Often, as in the present case, the country- and currency-specific risk varies over time, and the variations are different for different countries. As a result, the risk-free rates vary significantly over time, and are sometimes lower in the US, sometimes in China. These differences relate to factors such as observed and expected GDP growth, economic sentiment, and inflation levels. Because the risk-free rate varies over time, the same nominal absolute spread can signify a very different assessment of the risk. For example, where the bank estimates the company-specific risk of default at 10 % higher than the risk-free rate (relative estimation), the resulting absolute spread can be between 0,1 % (at a risk-free rate of 1 %) and 1 % (at a risk-free rate of 10 %). From an investor perspective, the relative spread is hence a better measure as it reflects the magnitude of the yield spread and the way it is affected by the base interest-rate level. (332) Third, the relative spread is also country-neutral. For instance, where the risk-free rate in the US is lower than the risk-free rate in China, the method will lead to higher absolute mark-ups. On the other hand, where the risk-free rate in China is lower than in the US, the method will lead to lower absolute mark-ups.

(262) After final disclosure, the Nanshan group also contested the BB rating established by the Commission for the companies in the group, arguing that credit ratings should have been looked at separately for each company, that the analysis was incorrectly limited to the IP, and that there is no evidence that Nanshan actually defaulted on its financial obligations.

(263) Furthermore, the Commission’s benefit analysis is also defective because the benchmark used by the Commission: (A) fails to reflect the market conditions prevailing in China, (B) contradicts the Commission assertions that financial markets in China are distorted (because the starting point is the PBOC benchmark rate), and (C) is based on two separate financing tools (loans and bonds), which an unrealistic hybrid benchmark that does not reflect standard market practices.

(264) Nanshan Group also provided a list of RMB-dominated bonds issued in the Hong Kong market for foreign investors, obtained from Bloomberg, submitting that a Hong Kong-based benchmark (purely based on bond yield rates) would more closely reflect the market conditions in China than a constructed US-China loan-bond hypothetical model.

(265) On Nanshan Group’s credit ratings, the Commission noted that it did make an individual assessment of the main companies within the scope of the investigation, i.e. the exporting producer, and those with the largest proportion of financing in the group, i.e. the intermediate parent company and the ultimate parent company, as highlighted in recitals (242) and (249) to (250) above. Contrary to the assertions of the company, the Commission did take into account the evolution of the financial indicators over the entire period considered (i.e. 2017 to the IP). The Commission did not find any meaningful differences between the financial situation of these companies. It also did not find any meaningful differences in the interest rates. The fact that Nanshan did not default on its obligations does not in itself contradict the conclusions on the overall financial situation of Nanshan Group. Therefore, the Commission maintained its conclusions on the credit rating.

(266) On the benchmark used for the calculation of the benefit, the Commission wishes to highlight that the use of the PBOC benchmark rate as a starting point for establishing the benchmark is exactly the way in which the benchmark is adjusted to prevailing market conditions in China, as it represents the risk-free rate in China, which is country-specific, as already mentioned in recital (261). Therefore, there is no contradiction as such. Furthermore, the Commission sees no issue with the combination of the risk-free rate on loans, and the use of a relative spread based on bonds. Indeed, the Commission does not simply add up the PBOC loan rate and the USD BB bond yield rate. Instead, it calculates a spread between AA and BB-rated bonds, which corresponds to a risk factor to be applied to the risk-free rate.

(267) In addition, loans and corporate bonds are in principle similar financial debt instruments. In fact, a corporate bond is a kind of a loan used by large entities to raise capital. Both loans and corporate bonds are contracted/issued for a certain period of time and bear an interest/coupon rate. The fact that the financing through a loan is provided by a financial institution and that the financing through a corporate bond is provided by investors, which in most cases are also financial institutions, is irrelevant for the determination of the core characteristics of both instruments. Indeed, both instruments serve to finance business operations, bear the same kind of remuneration and have similar repayment term and conditions. One can thus reasonably assume that the risk factor between AA and BB rated companies remains the same, whether it be for the issuance of loans or bonds. This claims was thus rejected.

(268) The Commission also examined the alternative benchmark proposed by the Nanshan Group. However, the RMB-denominated bonds issued in Hong Kong which were submitted concerned almost exclusively bonds issued by the government of China or financial institutions, and are thus not comparable to corporate bonds. Most of the bonds issued also did not provide any credit rating indication. The Commission thus found that this could not be used as a reasonable alternative for the benchmark currently used.

(269) Finally, the Nanshan Group claimed that the Commission made some calculation errors for several companies in the group because of cell formatting, duplication of loans, incorrect initial amount of loans in the submitted tables or errors spotted in the formulas. The Commission indeed noticed that it had made some clerical errors and the calculation of the benefit from loans was thus adapted accordingly.

(270) The Commission noted that the Wanshun Group was awarded an AA+ rating by a Chinese credit rating agency in 2018.

(271) As mentioned in recitals (176) to (178) above, the lending Chinese financial institutions did not provide any creditworthiness assessment. Hence, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the Wanshun Group were at market level.

(272) The exporting producer of the Wanshun Group presented itself in a generally profitable financial situation according to its own financial accounts.

(273) The exporting producer used short-term and long-term debt to finance its operations. The Commission assessed the short-term liquidity and the long-term solvency situation of the company.

(274) Regarding short-term liquidity, the Commission used liquidity ratios such as (a) current ratio, (b) cash ratio, (c) quick ratio, and (d) cash from operations ratio. These ratios measure the company’s ability to pay short-term obligations, including short-term debt.

(275) The company’s current ratio was at 1,04 in 2018, decreased to 0,96 in 2019 and then increased again to 0,98 in 2020). Despite the AA+ rating attributed to the company in 2019, the company’s current assets were thus not enough to pay the short-term obligations. This does not justify a high credit rating, for which a company should present a ratio of at least 2.

(276) The cash ratio of the company was on average 0,1 in 2016-2019 and 0,2 by the end of the IP; therefore, the company had insufficient cash at hand to pay its short-term debt.

(277) The quick ratio of the company was 0,11 in 2018 and 0,14 in 2019 and 2020, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term.

(278) The company showed a positive cash flow from operating activities since 2017, after having doubled in 2018, it decreased by 90 % until 2020. The operating cash ratio was 0,25 in 2018, 0,04 in 2019 and 0,02 by 2020. An operating cash ratio lower than 1 means that the company has not generated enough cash to cover its current liabilities.

(279) Considering the short-term liquidity indicators described in recital (297), the Commission concluded that the company at issue presented short-term liquidity problems which results in having a high-risk debtor profile.

(280) The Commission based the long-term solvency risk assessment on various solvency rations such as (a) debt ratios and (b) coverage ratios. These ratios measure the company’s ability to meet its long-term debt obligations. They are used by lenders and bond investors when assessing the company’s creditworthiness.

(281) Debt ratios measure the amount of liabilities, in particular long-term debt. The company had a high debt to assets ratio of 0,5, which means that 50 % of the assets of the company are financed by debt. The debt to equity ratio was 0,5 in the IP, which points to the fact the company is financing its activity through debt. The higher the debt to assets and the debt to equity ratios are, the higher the financial risk of the company is, which means that the company may have a harder time servicing its existing debts.

(282) The coverage ratios measure the company’s ability to serve its debt and meet its financial obligations. The Commission based its assessment on the interest coverage ratio and the cash from operations to debt ratio, which shows the ability of the company to repay its debt with cash generated from operating activities. The average CFO-to-Debt ratio of the exporter in the IP was 0,03. This means that the company would need 33 years to repay its total debt with the operating cash flow it generates in the IP. Therefore, there are indications of serious problems of the company to generate enough cash in order to repay is debt.

(283) Therefore, considering the long-term solvency ratios described in recital (303), the Commission considered that the company was not in a solid financial situation and had a risky profile for potential lenders and investors.

(284) Moreover, the company has contracted loans with the purpose to repay loans from other banks. This type of loan is considered as an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing.

(285) Following the above and in view of the overall distortions of Chinese credit ratings, mentioned in Section 3.5.2, the Commission concluded that the AA+ credit rating awarded to Wanshun Group is not reliable.

(286) The Commission considered that the overall financial situation of the group corresponds to a BB rating, which is the highest rating that does no longer qualify as ‘investment grade’.

(287) The benefit was established by applying the methodology described in recitals (252) to (255) to the period of loan financing during the investigation period.

(289) On the first point, the Commission confirmed that the indicators mentioned in this section are based on the financial statements of Zhongji Lamination Materials Co. Ltd. As already explained in recital (265), the Commission made an individual assessment of the main companies within the scope of the investigation, i.e. the exporting producer, and those with the largest proportion of financing in the group, i.e. the parent company. Indeed, this approach seems reasonable, as loans are provided to legal entities, not to the group as such. The Commission also took into account the evolution of the financial indicators over the entire period considered (i.e. 2017 to the IP).

(290) In any event, the Commission did not find any meaningful differences between the financial situation of the companies in the group. Indeed, even taking into account the consolidated data provided by the company itself upon disclosure, we still see a fragile cash situation, with a low cash ration and cash from operations to debt ratio. The debt-to-assets ratio is also very similar to that of the sole exporting producer. The Commission also did not find any meaningful differences in the interest rates of the loans issued to the various companies in the group. This claim was thus rejected.

(291) The Commission did not accept the claim presented under the second point, since the date proposed by the company post-dated the starting date of the loan, whereas the Commission used the benchmark figure for the date immediately preceding the starting date of the loan, and which was thus still applicable on that starting date.

(292) The Commission agreed with the claim presented under the third point, and adapted the calculations accordingly.

(293) The Commission noted that the Daching Group was awarded an AAA- rating by a Chinese credit rating agency in 2019.

(294) As mentioned in recitals (176) to (178) above, the lending Chinese financial institutions did not provide any creditworthiness assessment. Hence, in order to establish the benefit, the Commission had to assess whether the interest rates for the loans accorded to the Daching Group were at market level.

(295) The exporting producer Xiamen Xiashun presented itself in a generally profitable financial situation according to its own financial accounts.

(296) Xiamen Xiashun used short-term and long-term debt to finance its operations. The Commission assessed the short-term liquidity and the long-term solvency situation of the company.

(297) Regarding short-term liquidity, the Commission used liquidity ratios such as (a) current ratio, (b) cash ratio, (c) quick ratio, and (d) cash from operations ratio. These ratios measure the company’s ability to pay short-term obligations, including short-term debt.

(298) The company’s current ratio was at 0,9 in 2018, increased to 1,0 in 2019 and then decreased again to 0,9 by the end of the IP (first half of 2020). Despite the AAA- rating attributed to the company in 2019, the company’s current assets was just enough to pay the short-term obligations. This is not sufficient to justify a high credit rating, for which a company should present a ratio of at least 2.

(299) The cash ratio of the company was on average 0,1 in 2016-2019 and 0,2 by the end of the IP; therefore, the company had insufficient cash at hand to pay its short-term debt.

(300) The quick ratio of the company was 0,4 in 2017-2018 and 0,5 in 2019-by the end of the IP, while a quick ratio of at least 1 is considered as a reference. In fact, a company that has a quick ratio below 1 may not be able to pay off its current liabilities in the short-term.

(301) The company showed a positive cash flow from operating activities, however it decreased nearly by half from 2016 to 2019 and the end of the IP. An operating cash ratio was 0,2 in 2019 and by the end of the IP. An operating cash ratio lower than 1 means that the company has not generated enough cash to cover its current liabilities.

(302) Considering the short-term liquidity indicators described in recital (297), the Commission concluded that the company at issue presented short-term liquidity problems which results in having a high risk debtor profile.

(303) The Commission based the long-term solvency risk assessment on various solvency rations such as (a) debt ratios and (b) coverage ratios. These ratios measure the company’s ability to meet its long-term debt obligations. They are used by lenders and bond investors when assessing the company’s creditworthiness.

(304) Debt ratios measure the amount of liabilities, in particular long-term debt. The company had a high debt to assets ratio of 0,6, which means that 60 % of the assets of the company are financed by debt. The debt to equity ratio was 1,5 in the IP, which points to the fact the company is financing its activity through debt. The higher the debt to assets and the debt to equity ratios are, the higher the financial risk of the company is, which means that the company may have a harder time servicing its existing debts.

(305) The coverage ratios measure the company’s ability to serve its debt and meet its financial obligations. The Commission based its assessment on the interest coverage ratio and the cash from operations to debt ratio. The interest coverage ratio shows the ability of the company to finance interest costs. This ratio of the exporter was around 1,2 in the IP. Such a ratio of less than 1,5 indicates that the company has difficulties meeting its interest expenses. A cash from operations to debt ratio shows the ability of the company to repay its debt with cash generated from operating activities. The average cash from operations to debt ratio of the exporter in the IP was 0,1. This means that the company would need 10 years to repay its total debt with the operating cash flow it generates in the IP. Therefore, there are indications of serious problems to generate enough cash in order to repay debt.

(306) Moreover, the company has contracted loans with the purpose to repay loans from other banks. This type of loan is considered as an indication that the company is in a worse financial situation than what the financial statements would suggest at first sight, and that there is an additional risk related to its short and long-term financing.

(307) Therefore, considering the long-term solvency ratios described in recital (276), the Commission considered that the company was not in a solid financial situation and had a risky profile for potential lenders and investors.

(308) Taking into account the liquidity and solvency elements of the exporting producer, as described in recitals (297) to (305), the Commission considered that the overall financial situation of the Daching Group corresponds to a B/BB rating (where B rating was applied for loans with the purpose to repay loans from other banks), which is the highest rating that does no longer qualify as ‘investment grade’.

(309) The benefit was established by applying the benchmark described in recitals (252) – (253) to the period of loan financing during the investigation period.

(311) First, regarding the comment on the use of the Benchmark Interest Rate published by the PBOC or the Loan Prime Rate published by NIFC as a starting point in the calculation of the benchmark, the Commission pointed out that these rates are considered to be risk-free rates which, in a conservative approach, would be applied to companies having an AA rating. As found by the Commission in the current investigation, the PBOC Loan Benchmark Rate and the Loan Prime Rate published by NIFC rates applied to the best clients of these banks, thus the companies that were rated the highest. Indeed, as mentioned in the documentation submitted by the GOC during the course of the investigation, “LPR has been quoted by each LPR quoting bank in accordance with the loan rates issued to their prime clients (emphasis added) on the 20th of each month (69) ”Also, the Commission noted that the rating of the companies in the group in the last four years, as re-evaluated by the party using Bloomberg’s methodology, was not classified as the ‘investment grade’,

(312) Second, the credit rating methodology used by the Commission involved a number of ratios measuring the company’s current ability to pay the short-term obligations, which demonstrated to be not sufficient neither by selling the current assets (current ratio), nor using the cash at hand (cash ratio), not using the operating cash (operating cash ratio). All these ratios demonstrated short-term liquidity problems of the exporting producer, which resulted in having a high risk debtor profile, as explained in the recitals (296) – (302). At the same time the party did not demonstrate why these ratios should have been treated in any other way specific to the ACF industry. In addition, these ratios indicate company’s ‘current’ ability to pay the short-term obligations and are used for the purpose of the risk evaluation of the debtor only for the purpose of this investigation. This evaluation is separate and may be different from the assumption of the management in the preparation process of the financial statements, evaluating the company’s ability of going concern.

(313) Third, the guarantees provided to loans were provided by related parties in the group, to which the same credit rating applies. This should therefore have no impact as such on the Commission’s assessment. The claims of the party were therefore rejected.

(314) The Daching group further alleged that the Commission had used a wrong principal balance when calculating the loan interest benefit for the group on two loans. Namely, for the two loans initially borrowed, its principal was partially paid off and the principal applicable to the interest payment should have been less than the initial amount. Also, the actual interest payment for two other loans was paid after the IP and the Commission should have not treated the interest payment as zero in the calculation. The Commission reviewed the calculation and corrected it with regard to these claims.

(315) The Commission established that all sampled groups of exporting producers benefited from preferential financing through loans during the investigation period. In view of the existence of a financial contribution, a benefit to the exporting producers and specificity, the Commission considered preferential financing through loans a countervailable subsidy.

(317) The purpose of a credit line is to establish a borrowing limit that the company can use at any time to finance its current operations thus making working capital financing flexible and immediately available when needed. Therefore, the Commission considered that in principle, all short-term financing of the sampled companies, such as short-term loans, bank acceptance drafts etc., should be covered by a credit line instrument.

(318) The Commission established that Chinese financial institutions provided credit lines to each sampled group in connection with the provision of financing. These consisted of framework agreements, under which the bank allows the sampled companies to use various debt instruments, such as working capital loans, bank acceptance drafts and other forms of trade financing within a certain maximum amount.

(319) As mentioned in recital (317) above, all short-term financing should be covered by a credit line. Therefore, the Commission compared the amount of the credit lines available to the cooperating companies during the investigation period with the amount of short-term financing used by these companies during the same period to establish whether all short-term financing was covered by a credit line. Where the amount of the short-term financing exceeded the credit line limit, the Commission increased the amount of the existing credit line by the amount actually used by the exporting producers beyond that credit line limit.

(320) Under normal market circumstances, credit lines would be subject to a so-called ‘arrangement’ or ‘commitment’ fee to compensate for the bank’s costs and risks at the opening of a credit line, as well as to a ‘renewal fee’ charged on a yearly basis for renewing the validity of the credit lines. However, the Commission found that each sampled group of companies benefited from credit lines provided free of charge. Therefore, a benefit was conferred to the investigated groups of companies within the meaning of Article 6(d) of the basic Regulation.

(321) As mentioned in recital (99), according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(322) The Commission considered that credit lines are a form of a preferential financial support by financial institutions to encouraged industries such as the ACF sector. As specified in Section 3.1 above, the ACF sector is among the encouraged industries and is therefore eligible for all possible financial support.

(323) Following final disclosure, the GOC claimed that the credit lines allegedly being provided to the ACF industry procure no benefit and that they are not specific. The GOC reiterated its arguments concerning the non-binding nature of Decision 40, as well as the reasoning contesting the qualification of Chinese financial institutions as public bodies. In this respect, the Commission noted that the GOC failed to demonstrate that companies in the PRC can equally benefit from the preferential conditions observed as regards the ACF industry. Moreover, as credit lines are intrinsically linked to other types of preferential lending such as loans and as they are part of the credit support specifically provided to encouraged industries, the public body analysis and the specificity analysis as developed in Sections 3.4.1.1 to 3.4.1.5, as well as Section 3.4.2.2 above for loans is also applicable to credit lines. As a result, these claims were rejected.

(324) In accordance with Article 6(d)(ii) of the basic Regulation, the Commission considered the benefit conferred on the recipients to be the difference between the amount that they paid as a fee for the opening or the renewal of the credit lines by Chinese financial institutions, and the amount that they would pay for a comparable commercial credit line obtained at an undistorted market rate.

(325) The appropriate benchmarks for the arrangement fee and for the renewal fee were established at 1,5 % and 1,25 % respectively by reference to publicly available data (70) and benchmarks used in previous investigations (71).

(326) In principle, the arrangement fee and the renewal fee are payable on a lump sum basis at the time of the opening of a new credit line or the renewal of an existing credit line respectively. However, for calculation purposes, the Commission took into account credit lines which had been opened or renewed before the investigation period but which were available to the sampled groups during the investigation period and also the credit lines that were opened during the investigation period. Then, the Commission calculated the benefit based on the period within the investigation period during which the credit line was available.

(328) First, the Commission noted that preferential financing to Daching Enterprises Ltd. was provided by the same Chinese banks, as in the analysis in section 3.4.1.5. Therefore, it considered that such preferential financing through loans was a countervailable subsidy. Second, the Commission has also noted that all the export turnover of Daching Enterprises Ltd was sourced from Xiamen Xiashun, thus the subsidy amount was calculated as a percentage of the turnover of Xiamen Xiashun and was linked to the creditworthiness assessment of Xiamen Xiashun. Third, the absence of an arrangement fee, as explained in recitals (320) was considered as the benefit conferred on the recipients. No evidence was collected during the investigation or provided by the claiming party that a bank incurs no cost or risks at the opening of a credit line and is, therefore, not charging any fee. The claims of the party were therefore rejected.

(330) The renewal rate of 1,25 % and arrangement rate of 1,5 % cited in the Barclays price list used by the Commission apply to credit lines above 15 000 GBP. However, conditions applicable to credit lines of 40 000 GBP or even 100 000 GBP are not comparable to the conditions that would apply to the credit lines ranging from tens to hundreds of millions of USD taken out by Nanshan Group. It is thus apparent that the fees described in the Commission’s price list for small businesses would be waived in the interest of securing a financing agreement of such size. The second source of benchmark provided by the commission in Annex 2.2 (HSBC UK) is also misleading because it does not contain any fees. As an alternative, Nanshan Group proposed to use fees charged by PNC Bank in the United States, which does not charge an arrangement fee and only charges an annual 0,25 % annual renewal fee for a committed credit line of between 100 001 and 3 million USD.

(331) On the first and second points, the Commission noted that even though individual fees of clients may vary, no evidence was provided by the claiming party that a bank incurs no cost or risks at the opening of a credit line and is, therefore, not charging any fee.

(332) On the third point, regarding the benchmark fees used by the Commission, as stated in recital (325), the Commission used findings in previous anti-subsidy cases and publicly available data to conclude that the application of an arrangement fee benchmark of 1,5 % and a renewal benchmark fee of 1,25 % was reasonable. In this respect, the Commission pointed out that for instance Barclays Bank charges a set-up fee of 1,5 % of the arranged overdraft limit, and a renewal fee of 1,5 % for overdrafts over GBP 15 000. In this case, the renewal fee benchmark used by the Commission is lower. A further search also showed that Barkley charges higher business overdraft fees, from 1,6 % up to 2,5 % of the limits for the business bands GBP 15 001 – GBP 20 000 and GBP 20 001 – GBP 25 000. Finally, the Commission noted that the alternative benchmark proposed by Nanshan Group specifically related to small business clients, which is not relevant according to the statements of the company itself, and to secured credit lines, i.e. credit lines with lower risk as they are secured by certain collateral. Therefore, the Commission reiterated its conclusion that the benchmark fees it has used are reasonable and based on available market data and thus rejected the claim.

(333) Finally, Nanshan submitted that the Commission should not calculate a credit line benefit for Nanshan Finance because all short-term borrowings obtained by Nanshan Finance were related to re-discounted notes, which do not warrant a credit line. The Commission accepted this claim because the re-discounted bills were provided through inter-bank borrowings, and adjusted calculations accordingly.

(334) Bank acceptance drafts are a financial product aimed at developing a more active domestic money market by broadening credit facilities. It is a form of short-term financing that might “reduce fund cost and enhance capital efficiency” of the drawer (74). In addition, as stated by the PBOC on its website, “the bank acceptance draft can guarantee the establishment and performance of the contract between the buyer and the seller, as well as promote the capital turnover via the intervention of Bank of China’s credit” (75). In addition, on its website DBS Bank advertises bank acceptance drafts as a means to “improve working capital by deferring payments” (76).

(335) The Commission already established in a previous investigation that bank acceptance drafts are largely used as a means of payment in commercial transactions as a substitute to a money order thus, facilitating the cash turnover and the working capital of the drawer (77). From a cash point of view, the instrument de facto grants the drawer a deferred due date of payment of 6 months or 1 year because the actual cash payment of the transaction amount occurs at the maturity of the bank acceptance draft and not at the moment when the drawer had to pay its supplier. In the absence of such a financial instrument, the drawer would either use its own working capital, which has a cost, or contract a short-term working capital loan with a bank in order to pay its suppliers, which also has a cost. In fact, by paying with bank acceptance drafts, the drawer uses the supplied goods or services for a period of 3 months to 1 year without advancing any cash and without bearing any cost.

(336) Under normal market circumstances, as a financial instrument, bank acceptance drafts would imply a cost of financing for the drawer. The investigation showed that all the sampled companies that used bank acceptance drafts during the investigation period only paid a commission for the acceptance service provided by the bank, which was in general 0,05 % of the face value of the draft. However, none of the sampled companies bore a cost for the financing via bank acceptance drafts by deferring the cash payment of the supply of goods and services. Therefore, the Commission considered that the investigated companies benefitted from financing in the form of bank acceptance drafts for which they did not bear any cost.

(337) Considering the above, the Commission concluded that the bank acceptance system put in place in the PRC provided all exporting producers a free financing of their current operations, which conferred a countervailable benefit as described in recitals (354) to (356) below, in accordance with Article 3(1)(a)(i) and 3(2) of the basic Regulation.

(338) The Commission established in a previous investigation (78) that bank acceptance drafts effectively have the same purpose and effects as short-term working capital loans, as they are used by companies to finance their current operations instead of using short-term working capital loans, and that consequently, they should bear a cost equivalent to a short-term working capital loan financing.

(339) Following final disclosure, the GOC, Wanshun and Nanshan Group argued that bank acceptance drafts are actually credits provided by the supplier (i.e. the bearer of the draft) to the buyer (the drawer), not by a bank to the seller. This is due to the fact that the terms of payment of the contract clearly mention that the supplier agrees with the payment by way of a bank acceptance draft. Therefore, by signing such a contract, the supplier already anticipated that the payment will not be made at sight, but in a certain period of time (depending on the maturity of the bank acceptance draft). Any supplementary cost related to the late payment should already be included in the purchase cost. As such, the bank’s acceptance is merely there to facilitate transactions between unacquainted parties. The role of the bank is to provide a guarantee, for which it charges a certain fee upon the opening of the bank acceptance draft. However, ultimately it is the money in the bank account of the company that will be used to pay for the transaction for which the bank acceptance draft was issued. The bank will only pay in case the company defaults on its obligation to have sufficient funds in its bank account for the payment.

(340) The Commission observed that in fact, the bank acceptance draft is an actual means of payment acknowledged in the sales contract, and the payment obligation of the drawer towards the supplier is cancelled by the payment with a bank acceptance draft. The payment of the supplier by the drawer happens at the moment of the endorsement of the bank acceptance draft, while at maturity, the drawer honours its payment obligation towards the bank. In addition, as acknowledged by the GOC itself, the supplier has the option to endorse the draft towards other parties, and thus to use the bank acceptance draft immediately as a means of payment for its own purchases. Therefore, the bank acceptance draft cannot be classified as a credit by the supplier or as an additional guarantee of a future payment by the bank, and this claim was rejected.

(341) Concerning specificity, as mentioned in recital (102) according to Decision No 40, financial institutions shall provide credit support to encouraged industries.

(342) The Commission considered that bank acceptance drafts are another form of preferential financial support by financial institutions to encouraged industries such as the ACF sector. Indeed, as specified in Section 3.1 above, the ACF sector is among the encouraged industries and is therefore eligible for all possible financial support. Bank acceptance drafts, as a form of financing, are part of the preferential financial support system by financial institutions to encouraged industries, such as the ACF industry.

(343) No evidence was provided that any undertaking in the PRC (other than within encouraged industries) can benefit from bank acceptance drafts under the same preferential terms and conditions.

(344) Following final disclosure, both the GOC, Wanshun Group and Nanshan Group argued that bank acceptance drafts are not specifically provided to the ACF industry, as they are available to any company in China and are widely used. Furthermore, the GOC repeated its arguments concerning the non-binding nature of Decision 40, as well as the reasoning contesting the qualification of Chinese financial institutions as public bodies.

(345) In this respect, the Commission noted that the GOC and Nanshan Group failed to demonstrate that all companies in the PRC can equally benefit from the preferential conditions observed as regards the ACF industry. Moreover, similar to credit lines, bank acceptance drafts are intrinsically linked to other types of preferential lending such as loans and as they are part of the credit support specifically provided to encouraged industries, so the public body analysis and the specificity analysis as developed in Sections 3.4.1.1 to 3.4.1.5, as well as Section 3.4.2.2 above for loans is equally applicable. Furthermore, even if a form of financing could be in principle available to companies in other industries, the concrete conditions, under which such financing is offered to companies from a certain industry, such as the financing remuneration and the volume of financing, might make it specific. There was no evidence submitted by any of the interested parties demonstrating that the preferential financing through bank acceptance drafts of companies in the aluminium sector is based on objective criteria or conditions in the sense of Article 4(2)(b) of the basic Regulation. As a result, these claims were rejected.

(347) On the first point, the Commission already established in recital (338) that bank acceptance drafts have the same purpose and effects as short-term working capital loans and that consequently, they should bear a cost equivalent to a short-term working capital loan financing. The party did not substantiated further why the benchmark for the bank acceptance draft should be the same as for the credit line. Therefore, the claim was rejected.

(348) On the second point, the Commission already noted in recital that the sampled companies that used bank acceptance drafts during the investigation period only paid a commission for the acceptance service provided by the bank, which was in general 0,05 % of the face value of the draft. In fact, this commission paid for the processing of the bank acceptance draft by the bank, is a distinct element from the financing granted by the bank, for which the cooperating exporting producers did not bear any cost. This fee is paid in order to cover the bank’s administrative costs of processing the bank acceptance drafts. Therefore, the claim was rejected.

(349) On the third point, as the Commission concluded in previous investigations (79), it should first be noted that it is common practice for banks to request guarantees and collaterals from their clients when granting financing. Furthermore, it should be noted that such guarantees are used to secure that the exporting producer will bear its financial responsibility vis-à-vis the bank and not vis-à-vis the supplier. The investigation also revealed that these guarantees are not systematically requested by Chinese banks and are not always linked to specific bank acceptance drafts. In this respect, the alleged deposits do not amount to an advanced payment by the drawer to the banks but merely an additional guarantee requested at times by banks and which does not have any impact of the bank’s decision to issue the bank acceptance drafts with no additional borrowing interests for the drawer. Furthermore, they can take various forms including term deposits and pledges. The deposits bear interests in favour of the drawer, and therefore, do not represent a cost for the drawer of the bank acceptance draft. On this basis, this claim was rejected.

(350) On the last point, the Commission recalls that as stated above, a bank acceptance draft is a means of payment and therefore, it does not have the effect of extending the payment due date agreed with the supplier but it has the effect to defer the cash payment. As a means of payment, the bank acceptance draft can be endorsed by the payee (supplier) to settle its liabilities towards other parties. Therefore, there is no commensurate decrease in liquidity of the related parties that received the bank acceptance draft. There is also no double-counting, as bank acceptance drafts received as a means of payment were not countervailed at all in any of the companies. Consequently, the claim was dismissed.

(351) Following final disclosure, the Nanshan Group also requested a correction of calculation errors due to formula errors. The Commission accepted the claim and adapted the calculations accordingly.

(352) For the calculation of the amount of the countervailable subsidy, the Commission assessed the benefit conferred on the recipients during the investigation period.

(353) As mentioned in recitals (334) and (335), the Commission found that the sampled exporting producers used bank acceptance drafts to address their needs for short-term financing without paying a remuneration.

(354) The Commission thus concluded that bank acceptance drawers should pay a remuneration for the period of financing. The Commission considered that the period of financing started on the date of the issuance of the bank acceptance draft and ended on the maturity date of the bank acceptance draft. Regarding bank acceptance drafts issued before the investigation period and bank acceptance drafts with a maturity date after the end of the investigation period, the Commission calculated the benefit only for the period of financing covered by the investigation period.

(355) In accordance with Article 6(b) of the basic Regulation, considering that bank acceptance drafts are a form of short-term financing and that they effectively have the same purpose as short-term working capital loans, the Commission considered that the benefit thus conferred on the recipients is the difference between the amount that the company had actually paid as remuneration of the financing by bank acceptance drafts and the amount that it should pay by applying a short-term financing interest rate.

(356) The Commission determined the benefit resulting from the non-payment of a short-term financing cost. The Commission considered, as established in previous investigations (80), that bank acceptance drafts should bear a cost equivalent to a short-term loan financing. Therefore, the Commission applied the same methodology as to short-term loans financing denominated in RMB, described in Section 3.4.2 above.

(357) Companies from two sampled groups have issued convertible corporate bonds before the investigation period. One company within the sampled groups (Shantou Wanshun) issued convertible corporate bonds before the investigation period, which were partly converted into capital during the investigation period. This convertible bond has a progressive interest rate structure with very low interest rates, ranging between 0,4 % and 2 %, which is far below the Loan Benchmark/Prime Rate set by the GOC.

(358) Another company (Shandong Nanshan) had issued convertible bonds before the investigation period, which had been converted into capital in 2015 as part of a debt-to-equity swap. The holders of the bonds of both companies were mainly state-owned financial institutions. The Commission also found that the convertible bonds of both companies were converted into capital at a significantly higher price than the prevailing market price of the shares at the time of conversion.

(359) The Commission established that both sampled companies benefited from preferential financing in the form of convertible bonds.

— Law of the People’s Republic of China on Securities (version 2014) (‘Securities Law’) (81);

— Administrative Measures on Issuance of Securities by Listed Companies (version 2008) (82);

— Administrative Measures on Sponsorship for Securities Issuance and Listing (version 2008) (83);

— Administrative Measures on Issue and Underwriting of Securities (version 2018);

— Regulations on the Administration of Corporate Bonds, issued by the State Council on 18 January 2011;

— Administrative Measures for the Issuance and Trading of Corporate Bonds, Order of the China Securities Regulatory Commission No 113, 15 January 2015;

— Measures of the Administration of Debt Financing Instruments of Non-financial Enterprises on the Inter-bank Bond Market Issued by the People’s Bank of China, Order of the People’s Bank of China [2008] No 12, 9 April 2008.

(360) The Regulations on the Administration of Corporate Bonds and the Administrative Measures for the Issuance and Trading of Corporate Bonds set the general legal framework applicable to corporate bonds. However, there is a set of specific legislation applicable to convertible corporate bonds, namely the Administrative Measures on Issuance of Securities by Listed Companies, the Administrative Measures on Issue and Underwriting of Securities and the Administrative Measures on Sponsorship for Securities Issuance and Listing.

(361) Article 14 of the Administrative Measures on Issuance of Securities by Listed Companies defines ‘convertible corporate bonds’ as “corporate bonds which are issued by an issuing company pursuant to law and which may be converted to shares during a certain period and under stipulated conditions”.

(362) Pursuant to Article 11 of the Securities Law, which was applicable at the time of the issuance of the convertible bonds by the sampled companies, as well as Article 45 of the Administrative Measures on Issuance of Securities by Listed Companies and Article 2 of the Administrative Measures on Sponsorship for Securities Issuance and Listing, companies that want to issue convertible corporate bonds need to solicit the services of a securities sponsor, which acts as an underwriter. The sponsor organizes the issuance of the bonds, recommends the issuer, submits the application file to the CSRC for approval, negotiates the interest rates at which the bond will be presented to investors and is responsible for finding investors which would accept the agreed terms of issuance of the bond, including the interest rate.

(363) In line with the regulatory framework, convertible bonds cannot be issued and traded freely in China. The issuance of each bond must be approved by the CSRC. Article 16 of the Securities Law stipulates that “listed companies issuing convertible corporate bonds shall […] satisfy the requirements stipulated in this Law for public offering of shares; and shall obtain the approval of the securities regulatory authorities of the State Council”. According to Article 3 of the Administrative Measures on Issue and Underwriting of Securities, which applies to convertible bonds, “the CSRC shall supervise and administer the offering and underwriting of securities to the law”. Furthermore, according to Article 10 of the Regulations on the Administration of Corporate Bonds, there are annual quotas for the issuance of corporate bonds.

(364) According to Article 16 of the Securities Law, the public issuance of bonds should satisfy the following requirements: “the usage purpose of the proceeds shall comply with State industrial policies” and “the proceeds from a public offering of corporate bonds shall be used for approved purpose(s) only”. Article 12 of the Regulations on the Administration of Corporate Bonds reiterates that the purpose of the raised funds must comply with the industrial policies of the State. Furthermore, Article 10(2) of the Administrative Measures for the Issuance of Securities by Listed Companies, which is a lex specialis applicable to convertible bonds, stipulates that “the purposes of use of the fund raised are in line with the industrial policies of the State”.

(365) As explained in recital (100), Decision No 40 refers to ‘The Guiding Catalogue for Industry Restructuring’ and provides that if “the investment project belongs to the encouragement content it shall be examined and approved and put on records according to the relevant national regulations on investment; all financial institutions shall provide credit support according to the credit principles”. It follows that the issuance of convertible corporate bonds, which, as shown, necessarily target an encouraged industry, corresponds with the practice of financial institutions to support those industries.

(366) The interest rates on corporate bonds are also strictly regulated. Article 16 of the Administrative Measures for the Issuance of Securities by Listed Companies provides that “the interest rate of a convertible corporate bond shall be determined by the issuing company and the leading underwriter through negotiations, but it shall satisfy the relevant provisions of the State”. According to Article 16(5) of the Securities Law, “the coupon rate of the corporate bonds shall not exceed the coupon rate stipulated by the State Council”. In addition, Article 18 of the Regulations on the Administration of Corporate Bonds, which is generally applicable to all bonds, provides further details by stating that, “the interest rate offered for any corporate bonds shall not be higher than 40 % of the prevailing interest rate paid by banks to individuals for fixed-term savings deposits of the same maturity”.

(367) According to Article 17 of the Administrative Measures for the Issuance of Securities by Listed Companies, “to publicly issue convertible corporate bonds, a company shall entrust a qualified credit rating agency to make credit ratings and follow-up ratings”. In addition, Article 18 of the generally applicable Administrative Measures for the Issuance and Trading of Corporate Bonds stipulates that only certain bonds complying with strict quality criteria, such as an AAA credit rating, may be issued in a public manner to public investors or be issued in a public manner to qualified investors. The corporate bonds that fail to meet these standards can be issued in a public manner only to qualified investors.

(368) According to the China bond market insight 2021 by Bloomberg, the bonds listed in the interbank bond market account for 88 % of the total trading volume of bonds (84). According to the same study, most of the investors are institutional investors, including financial institutions. In particular, State-owned commercial banks represent 57 % of the investors and policy banks represent 3 % (85). Furthermore, the Commission found that all of the investors of the convertible bonds issued by one of the sampled companies are institutional investors, a category of investors that includes financial institutions.

(369) Furthermore, as an encouraged industry under the ‘Guiding Catalogue for Industry Restructuring’, the ACF industry is entitled to credit support by financial institutions based on Decision No 40. The fact that convertible bonds, such as the convertible bonds issued by the sampled companies, bear a low interest rate is a strong indication that financial institutions, which are the major investors in these bonds, are obliged to provide “credit support” to these companies and take into account other considerations than commercial considerations when taking the investment or financing decision, such as government policy objectives. Indeed, an investor operating in market conditions would be more sensitive to the financial return on the investment and would most probably not invest in convertible bonds bearing very low interest rates. Moreover, the conclusions reached by the Commission about the financial situation of both groups of exporting producers in Section 3.4.2.3 above in terms of their liquidity and solvency profiles further indicate that investors operating in market conditions would not invest in financial instruments such as convertible bonds, offering low financial returns, while the issuer presents high liquidity and solvency risks. Therefore, in the Commission’s view only investors having motivations other than a financial return on their investment, such as compliance with the legal obligation to provide financing to companies in encouraged industries, would make such an investment.

(370) On the basis of the above, the Commission considered that there is a body of corroborating evidence, according to which a major proportion of the investors in the convertible bonds issued by the sampled companies, are financial institutions which have a legal obligation to provide credit support to ACF producers.

(371) Furthermore, as described in Section 3.4.1 above, the financial institutions are characterized by a strong State presence, and the GOC has the possibility to exercise a meaningful influence on them. The general legal framework in which these financial institutions operate is also applicable to convertible bonds.

(372) In Section 3.4.1 above, the Commission concluded that State-owned financial institutions are public bodies within the meaning of Article 2(b) read in conjunction with Article 3(1)(a)(i) of the basic Regulation and that they are in any event considered entrusted or directed by the GOC to carry out functions normally vested in the government within the meaning of Article 3(1)(a)(iv) of the basic Regulation. In Section 3.4.1.7 above, the Commission concluded that private financial institutions are also entrusted and directed by the government.

(373) The Commission also sought concrete proof of the exercise of control in a meaningful way based on concrete issuances of convertible bonds. It therefore examined the overall legal environment as set out above in recitals (360) to (367), in combination with the concrete findings of the investigation.

(374) The Commission found that the convertible bonds were issued by the two groups of sampled exporting producers at very low and similar interest rates, regardless of the companies’ financial and credit risk situation. The Commission also found that a meaningful amount of these bonds were converted into shares at a significantly higher price than the prevailing market price of the shares. Thus, even when the bonds were converted into shares, the rate of return remained below market value.

(375) In light of the above considerations, the Commission concluded that the Chinese financial institutions, which are the major investor in the convertible bonds issued by the sampled companies, followed the policy orientations laid down in Decision No 40 by providing preferential financing to companies pertaining to an encouraged industry and thus acted either as public bodies within the meaning of Article 2(b) of the basic Regulation or as bodies which are entrusted or directed by the government within the meaning of Articles 3(1)(a)(iv) of the basic Regulation.

(376) By accepting to invest in convertible bonds with a very low rate of return irrespective of the risk profile of the issuer, including below the risk free reference rate offered by the PBOC or published by the NIFC as referred to in recital (387) below, and by agreeing to convert the bonds into shares at a price much higher than their current market value, the financial institutions provided a benefit to the sampled exporting producers.

(377) Following final disclosure, the GOC claimed that the purchase of corporate bonds and convertible corporate bonds is a regular commercial practice that occurs in all major jurisdictions, including the European Union and the US. According to the GOC, the fact that many of the investors in bonds are institutional investors, including financial institutions, is also similar to the situation in the EU. The GOC argued that, in any event, even if the figures provided in the Disclosure are accepted, so that 57 % of the investors would be State-owned commercial banks, and 3 % would be policy banks, this would still leave a market share of 40 %, which should not be ignored.

(378) According to the GOC, the Commission also failed to make a separate analysis of the roles carried out by financial institutions in the Chinese market for convertible bonds. as these are different types of instruments compared to loans, and the roles carried out by investing financial institutions are fundamentally different was well. The same reasoning was also applied to corporate bonds referred to in section 3.6.2 below.

(379) The Commission disagreed with the statement of the GOC that it did not carry out a specific assessment of the conduct of financial institutions as public bodies for the function of buying bonds. In addition to the conclusions reached by the Commission in Section 3.4.1 above, the Commission also sought concrete proof of the exercise of control in a meaningful way based on the concrete issuances of convertible bonds and carried out a specific assessment in recitals (373) and (374). While the Commission agreed with the GOC that the purchase of corporate bonds and convertible bonds may be in principle a regular commercial practice that occurs in all major jurisdictions, it pointed out that the purchase of corporate bonds by Chinese financial institutions is characterised by a State interference as demonstrated in recital (375).

(380) The Commission considered that the preferential financing through convertible bonds is specific within the meaning of Article 4(2)(a) of the basic Regulation. Convertible bonds cannot be issued without the approval of the CSRC, which checks if all the regulatory conditions for the issuance of the convertible bonds are met. As explained in recital (364), according to the Securities Law and the Administrative Measures on Issuance of Securities by Listed Companies specifically applicable to convertible bonds, the issuance of convertible bonds must be in line with the State’s industrial policies. The Commission considered in recital (366) that “in line with the industrial policies of the State” means that the investment project falls under the ‘encouraged’ content in the Guiding Catalogue of Industry Restructuring to which the ACF industry belongs.

(381) No evidence was provided that any undertaking in the PRC (other than within encouraged industries) can benefit from convertible bonds at the same preferential terms and conditions.

(382) Following final disclosure, the GOC submitted that the criteria that must be met by a company in order to issue bonds are financial in nature and are not policy-oriented. The GOC disagreed with the stance that the issuance of convertible bonds must be in line with the State’s industrial policies and repeated that the ACF industry is not an encouraged industry. The same reasoning was also applied to corporate bonds referred to in section 3.6.2 below.

(383) In this respect, although the Commission agreed that bonds markets are regulated in every country and that most of the criteria that must be met by a company in order to issue bonds are financial in nature, it disagreed with the claim of the GOC that the issuance of convertible bonds is not policy-oriented in China. First, the Commission reiterated its stance that the ACF sector is an encouraged industry. Second, the Commission considered that the wording of the Securities Law of the PRC (version 2014) and the Administrative Measures on Issuance of Securities by Listed Companies specifically applicable to convertible bonds, according to which the issuance of convertible bonds must be in line with the State’s industrial policies is clear enough. Finally, the Commission established in recital (376) that by accepting to invest in convertible bonds with a very low rate of return irrespective of the risk profile of the issuer, the financial institutions provided a benefit to the sampled exporting producers. Therefore, the claims of the GOC were rejected.

(384) Convertible bonds are a hybrid debt instrument which have features of a bond such as interest payments while also providing the opportunity to convert the invested amount into shares under certain conditions.

(385) The Commission found that the interest rate on the convertible corporate bond issued by the sampled companies in the IP was at such a low level that only investors having motivations other than a financial return on investment, for example compliance with the legal obligation to provide financing to companies in encouraged industries, would invest in them. This was supported by the fact that a major proportion of the investors in the convertible bonds issued by the sampled companies is constituted by state-owned financial institutions.

(386) The Commission found that the part of the convertible bonds of both the sampled companies that has not been converted into shares provided investors a return in the form of an interest similarly to loans or standard bonds. Since the calculation methodology for loans described in recital (248) is based on bonds, the Commission decided to follow the same methodology (86). This means that the relative spread between US AA corporate bonds and US BB corporate bonds with the same duration is applied to the Loan Benchmark Rates published by the PBOC or, after 20 August 2019, the Loan Prime Rate published by the NIFC (87), to establish a market-based interest rate for bonds.

(387) The benefit is the difference between the interest amount that the company should have paid by applying the market-based interest rate referred to in recital (419) and the actual interest paid by the company.

(388) The Commission also found that a meaningful amount of these bonds were converted into shares. The Commission found that the convertible bonds of both companies were converted into capital at a significantly higher price than the prevailing market price of the shares. In this case, the Commission considered the debt converted into shares as a countervailable equity injection. The benefit of this capital injection was considered to be the difference between the stock price of the shares at the time of conversion, and the additional premium paid by the bondholders. This benefit was allocated to the IP using the average depreciation period of the assets of the companies.

(389) Following final disclosure, the GOC and Wanshun Group objected the use of the same benchmark for bonds and convertible bonds as the one applied to loans, since the convertibility of a bond is an essential element thereof, which also makes it a substantially different loan instrument. The GOC also claimed that there is no basis for the Commission to use the PBOC benchmark as a starting point and then add a mark-up. According to the GOC, European ACF producers with a BB rating also issued bonds for a similar maturity period at significantly lower rates than the calculated benchmark rate during the same period. The same reasoning was also applied to corporate bonds referred to in section 3.6.2 below.

(390) In addition, Wanshun pointed out that bonds are highly tradable in the market (a person holding the bond can sell it in the market without waiting for its maturity). By contrast, a loan is an agreement between two parties, where one party borrows money from the other. The loan is not generally tradable in the market. In addition, Shantou Wanshun’s bond could be converted into shares, thus providing a further advantage to the bondholder. Accordingly, the interest rates for convertible bonds would logically be lower than for loans, as well as other types of bonds (investors would be willing to accept a lower coupon rate on a convertible bond because of its conversion feature). As an alternative, Wanshun proposed to use a Hong Kong-based benchmark based on bond yield rates, i.e. the same benchmark as the one proposed by the Nanshan Group for loans in recital (264).

(391) The Commission pointed out that loans and corporate bonds are in principle similar financial debt instruments. In fact, a corporate bond is a kind of a loan used by large entities to raise capital. Both loans and corporate bonds are contracted/issued for a certain period of time and bear an interest/coupon rate. The fact that the financing through a loan is provided by a financial institution and that the financing through a corporate bond is provided by investors, which in most cases are also financial institutions, is irrelevant for the determination of the core characteristics of both instruments. Indeed, both instruments serve to finance business operations, bear the same kind of remuneration and have similar repayment term and conditions. Furthermore, during the investigation, the Commission found out that the corporate bonds issued by the cooperating exporting producers had coupon rates and purposes which were very similar to the interest rates and purpose of loans with similar duration, and thus they could be considered interchangeable from the producer’s perspective, thus justifying the application of the same benchmark for both instruments in the specific circumstances of this case.

(392) Furthermore, the Commission considered the comments of the GOC referring to interest rates applicable to BB-rated companies in the European Union as unfounded since the risk-free rate in the European Union is not the same as the risk-free rate in the PRC and thus it is not possible to compare interest rates in absolute terms.

(393) The Commission agreed that convertible corporate bonds are a hybrid debt instrument which also provides the opportunity to convert the invested amount into shares under certain conditions and are as such in principle different from corporate bonds. The Commission did look into the possibility to quantify this convertibility element. However, the benchmark proposed by Wanshun did not take into consideration such convertibility. In addition, it was not an appropriate benchmark in general for bonds for the reasons already set out in recital (268). No other possible benchmarks were submitted, and no further public information was available to provide for a more accurate benchmark for convertible bonds (e.g. indices for the premium on US AA rated convertible bonds and US BB rated convertible bonds) or for the convertibility aspect of these bonds. Moreover, the benchmark used as the basis for the conversion was in any event a risk-free rate. These claims were therefore rejected.

(395) The Commission notes that Wanshun did not provide sufficient evidence to support its claim that a majority of investors of Shantou Wanshun convertible bonds were individuals operating on the Shenzhen Stock Market. Indeed, the source of this claim could not be verified, the supporting document did not provide a clear definition for what it considers to be private and state-owned investors, and it did not contain the individual names of the investors either. Therefore, this claim was rejected.

(396) The Commission accepted the claim of Wanshun on the deduction of the coupon payments from the benchmark interest payments, and deducted the coupon payment regarding the investigation period from the benchmark interest payments.

(398) The Commission disagreed with the comments regarding the initial conversion price set in July 2018. It noted that in case the stock market price of a given share at the moment of conversion is materially lower than its market price, a rational investor would refrain from converting the bonds into shares, and continue to keep the bonds instead. Thus, the rational investor would try to minimize the risk of an unfavourable price evolution.

(399) The Commission disagreed also with the comment regarding the incorrect conversion price. From the information submitted to the Commission, it appeared that the price change claimed by the Wanshun Group actually only took place after the conversion of the shares. Therefore, the Commission maintained that it has used the correct conversion price when calculating the benefit.

(400) One of the sampled groups benefited from preferential financing in the form of corporate bonds.

— Securities Law;

— Administrative Measures for the Issuance and Trading of Corporate Bonds, Order of the China Securities Regulatory Commission No 113, 15 January 2015;

— Regulations on the Administration of Corporate Bonds, issued by the State Council on 18 January 2011;

— Measures of the Administration of Debt Financing Instruments of Non-financial Enterprises on the Inter-bank Bond Market Issued by the People’s Bank of China, Order of the People’s Bank of China [2008] No 12, 9 April 2008.

(401) In line with the regulatory framework, bonds cannot be issued or traded freely in China. The issuance of each bond must be approved by various governmental authorities, such as the PBOC, the NDRC or the CSRC, depending on the type of bond and the type of issuer. In addition, according to the Regulations on the Administration of Corporate Bonds, there are annual quotas for the issuance of corporate bonds.

(402) Furthermore, according to Article 16 of the Securities Law applicable during the IP, a public offering of corporate bonds should satisfy the following requirements: “the usage purpose of the proceeds shall comply with State industrial policies […]” and “the proceeds from a public offering of corporate bonds shall be used for approved purpose(s) only”. Article 12 of the Regulations on the Administration of Corporate Bonds reiterates that the purpose of the raised funds must comply with the industrial policies of the State. As explained in recitals (364) and (365), the issuance of corporate bonds under such conditions targets an encouraged industry such as the ACF industry and corresponds with the practice of financial institutions to support those industries.

(403) According to Article 16(5) of the Securities Law, “the coupon rate of the corporate bonds shall not exceed the coupon rate stipulated by the State Council”. In addition, Article 18 of the Regulations on the Administration of Corporate Bonds provides further details by stating that, “the interest rate offered for any corporate bonds shall not be higher than 40 % of the prevailing interest rate paid by banks to individuals for fixed-term savings deposits of the same maturity”.